July Technical Analysis – DRN and EDC

The last few months have been “choppy” to say the least, which is normal for this stage of a uptrend. According to IBD (as of this morning), the general markets are still under pressure. When I look at the tape, the markets are in a downtrend according to my rules.

Right now, the 50 and 200 day moving averages are very close to each other, so it is best to be on the defensive. The fact that the politicians in Washington are playing roulette with the debt ceiling isn’t smoothing out the ride any either.

DRN

June’s assessment of DRN:

After a brief test of 52 week high’s, DRN fell back to earth and is now testing the uptrend from last October. On the plus side, DRN found some support at the $63.00 level.

What a month! After finding support from the October uptrend, DRN shot back up and hit a new 52-week high (roughly a 30% move). This was one of those moments where I ask myself, “Why did I sell calls?”. But the market intervened, and DRN fell back to the mid-70’s. We’re now back to the 50/200 day moving averages, so it is anyone’s guess where we’ll be headed.

EDC

June’s Commentary:

EDC is approaching lows for the year, after slicing through its 200 day moving average and continuing lower. EDC still hasn’t broken the $32/$33 support levels, but most of the moves to the downside have been on above average volume, which is not a good sign. The downtrend is currently on a ~10% per month pace, so by the end of June/beginning of July, we could see a retest of the upper limit of the downtrend ($36/share or so).

EDC passed through the short-term downtrend at $36, got back above the 50 day moving average, and then tried to take out the $40 per share level. In my opinion, EDC ran into some pretty stiff resistance, falling 15% in 3 days.

Technically, EDC is still range-bound between the low 40’s and low 30’s. Event-wise, the credit issues taking hold in Europe are not helping the emerging markets. If the up/down trend continues we could see a low of 30 before EDC heads north again sometime in late August.